Short answer: a heat pump water heater is one of the easiest electrification upgrades in Colorado, and it often has the best rebate per dollar. If your water heater sits in a basement or utility room that stays above about 40°F and has some space around it, you're likely a good fit. Unheated garages and tight closets need more thought.
What it is
A heat pump water heater is a tank water heater with a small heat pump on top. Instead of burning gas or running a resistance element, it moves heat from the surrounding air into the water. Most units also have resistance elements as backup for high demand or cold conditions.
Moving heat uses far less electricity than making it with a resistance element, so the biggest savings come when you replace an electric tank. Savings against a gas water heater depend on your gas and electric rates, which we cover in what happens to your gas bill. We'd rather not quote a national savings figure that may not match Colorado rates.
Colorado rebates in 2026
| Program | Amount | Notes |
|---|---|---|
| Xcel Energy | Up to $1,500 replacing gas or propane; $750 replacing electric | Effective Oct. 1, 2026. ENERGY STAR, 3.3 UEF or better, 80 gallons or less. Self-install allowed. |
| Colorado heat pump tax credit | Up to $250 credit, at least $83 to you | Claimed by a registered contractor. The 2026 amount may be lower. |
| Colorado Springs Utilities | $750 | Paid as an account credit. |
| Holy Cross Energy | $1,000 ($2,000 income-qualified) | Apply within 90 days. |
| Black Hills Energy (electric) | $2,325 replacing gas | Written preapproval required. |
| Efficiency Works | $600 replacing electric or propane; $400 replacing gas | Fort Collins, Loveland, Longmont, Estes Park. |
| Boulder County EnergySmart | 50% of cost up to $2,000 per year | Income-qualified only, preapproval first. |
| Eagle County (Energy Smart Colorado) | 25% of cost up to $1,000 | Apply after install. |
Power Ahead Colorado does not include water heaters in its current phase. The state HEAR rebate (up to $1,750) is closed for single-family homes.
Xcel doesn't say whether 120-volt models qualify. Check the model against Xcel's requirements before you buy.
Where it can go
Space
ENERGY STAR recommends about 1,000 cubic feet of air around the unit. That's a 10-by-10-foot room with 10-foot ceilings. Manufacturer rules vary. Rheem's plug-in spec sheet, for example, says:
- Over 1,200 cubic feet: no extra ventilation needed.
- 400 to 1,200 cubic feet: a full louvered door is required.
- Under 400 cubic feet: must be ducted.
A water heater crammed into a small closet off a hallway is the hard case. It can work with louvers or ducting, but plan it up front.
Temperature
ENERGY STAR recommends a space that stays between 40°F and 90°F. Rheem lists an ambient operating range of 37°F to 145°F for its plug-in model. Below the low limit, the unit runs on resistance heat only.
That matters in Colorado:
- Finished or unfinished basements on the Front Range usually stay well within range. This is the best spot.
- Attached garages often stay above freezing because the house warms them, but they can dip into the 30s during a cold snap. The water heater will still make hot water on resistance backup, at higher cost for those days.
- Detached or uninsulated garages and mountain crawlspaces can freeze. Talk to your installer before choosing one of those.
Noise and condensate
The compressor and fan make noise, comparable to a dehumidifier. Don't put it against a bedroom wall without thinking about it. The unit also produces condensate that needs a drain or a pump.
The cooling effect
The unit pulls heat out of the room. ENERGY STAR notes it can cool and dehumidify the space. In a Colorado basement that's helpful in summer and a small extra heating load in winter.
120-volt or 240-volt?
Traditional heat pump water heaters use a 240-volt, 30-amp circuit, like an electric tank. Plug-in models run on 120 volts. Rheem's dedicated-circuit plug-in is rated at about 1,100 watts on a 15-amp circuit, and Rheem sells a version designed to share an existing circuit.
The trade-off is recovery speed. With no large resistance element, a 120-volt unit refills its hot water more slowly, so people often choose a larger tank. If you're replacing a gas water heater and your panel is tight, a 120-volt unit can avoid new circuits entirely. See do I need a bigger panel.
When to do it
The best time is before your current water heater fails. An emergency replacement usually means taking whatever is on the truck, which is rarely a heat pump unit with a rebate lined up. If your tank is ten or more years old, it's worth planning now.
Before you buy
- Check the space: volume, lowest winter temperature, a drain for condensate.
- Check the electrical: 240-volt circuit available, or plan a 120-volt model.
- Check the rebate rules for your utility, and whether preapproval is required.
- If you want the state credit, use a contractor registered with the Colorado Energy Office.